Alcatel-Lucent seeks startups, puts new strategy to work

In the company’s fourth-quarter earnings report today, Alcatel-Lucent backed up the strategy changes it promised in December, offering more detail on its plans to partner with other vendors in new ways and recording massive one-time charges related to its decision to cut spending on legacy products.

Part of the megavendor’s new strategy, is an imperative to partner with other companies in three distinct ways: to gain credibility and presence in the enterprise IT space, to manage legacy products and to benefit from the pioneering work of new startups.

Alcatel-Lucent has already begun work on that last point, which the company calls a “work in progress” for now. The company has recently tasked its Bell Labs research division with scanning the market for innovative startups and working with them, and it has asked the same of its carrier product group, helmed by Phillippe Keryer, who previously led the vendor’s GSM and WiMax access businesses.

“This is probably one of the most difficult things to do because it is the fundamental question, ‘Can an elephant dance?’ and the answer is yes, but it’s very noisy,” said Ben Verwaayen, Alcatel-Lucent’s chief executive officer. “If you’re a startup company, would you like to put yourself next to the big elephant with the big feet saying, ‘Let’s go and dance together?’ You need to make sure you’re nimble and humble in the way you approach it, in the same way as they come to you.”

Meanwhile, Alcatel-Lucent also plans to partner with others for the legacy end of its business as well, to reduce costs there. That effort, which Verwaayen called “co-sourcing,” would exclude startups in favor of companies that have a size and scale more commensurate with Alcatel-Lucent’s massive global base.

“There are companies around the world who are better to do legacy R&D or end-of-life-cycle R&D than we are,” Verwaayen said. “If we do that together, if they do stuff for us and we do stuff for them, it may be that if you go to market, you’re in a much stronger position to go and sell. And you have a lower cost base and better quality of performance.”

In December the new CEO announced Alcatel-Lucent would focus on four areas it already serves -- IP, optical, fixed-line broadband and mobile broadband (in particular Long-Term Evolution, or LTE) – while cutting spending on customer premises gear, CDMA and GSM. Consistent with that strategy, the fourth quarter -- which Verwaayen called “not so bad” despite nearly 4 billion euros in one-time charges -- was the best quarter ever for Alcatel-Lucent’s IP routing business. And much of the company’s massive fourth-quarter writedown was related to legacy products in the applications, WCDMA, optics and “multicore” areas.

In addition to teaming with startups and for legacy products, Verwaayen reiterated the company’s drive to partner with major players in the IT space to leverage their expertise. “Are we, Alcatel-Lucent, world-class in IT? Don’t think so,” he said. “We need to get there. It may be better to partner.”